Secure Energy Services Inc T.SES

Significant Upgrade (TD)

[retiredcf]

A 62% bump in target price. GLTA

Secure Energy Services Inc.

(SES-T) C$4.19

Tervita has been Secured; Resuming Coverage at BUY

Event

We are resuming coverage following Secure's acquisition of Tervita.

Impact: POSITIVE

Details: We are resuming coverage of Secure as it closed its acquisition of Tervita, with each Tervita share exchanged for 1.2757 Secure shares. Although the Commissioner of Competition made an application on June 29, 2021 to prevent the closing of the transaction, the application was denied by the Competition Tribunal/ Federal Court of Appeal. Secure will work cooperatively with the Competition Bureau to resolve any concerns related to the transaction, which could include smaller, non-material dispositions. Solus Alternative Asset Management, Tervita's largest shareholder (~34.5% of legacy-Tervita's common shares), is locked up for nine months following the close.

Updated Debt Structure: Secure has made a number of changes to its debt structure, including the close of a $200 million private offering of 7.25% senior unsecured notes due December 30, 2026, entrance into a three-year $800 million credit facility, and a $30 million unsecured letter of credit facility. Secure also took on Tervita's US$500 million of 11.0% senior second lien secured notes due 2025 of which Secure intends to redeem US$100.0 million of these notes at 105.5% with the proceeds of the 2026 note offering. Details on page 2.

TD Investment Conclusion

We believe that this was a fantastic acquisition for Secure and expect that the optimization of its combined asset base will deliver material synergies (guidance of $75 million annually) and significantly improve the competitive landscape of its core business. More impressively, Secure was able to complete this transaction with essentially no premium. Based on our revised estimates, we calculate that Secure is trading at a discount to our oilfield services coverage universe (details on page 3) despite having several desirable attributes, including a resilient, production- weighted business model, strong free-cash-flow generation (2022E FCF/EV of 15.5%), and appropriate leverage (2022E ND/EBITDAS of 1.7x). Finally, with a pro- forma market capitalization and enterprise value of $1,289.2 million and $2,471.1 million, respectively, we believe that this transaction separates Secure from the remainder of the sector from a market relevance perspective. As a result, we are resuming coverage with a BUY rating and $6.50 target price.